The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP) has approved the phased liberalization of bank branching policy through the issuance of revised guidelines that were subjected to extensive consultations with the banking industry associations, the general public, as well as other interested stakeholders. This effectively lifts the existing moratorium on the establishment of branches and other banking offices. The new regulations are aimed primarily at enhancing competition and the accessibility of efficient banking services in underserved areas.
Under the new guidelines, banks that meet the qualification requirements may now establish branches anywhere in the Philippines except in the cities of Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig and Quezon, and the Municipality of San Juan, in Metro Manila which will remain covered by branch moratorium for now. BSP studies indicated that these areas are presently adequately served by existing banking offices. Nevertheless, this still represents a significant liberalization since the rest of NCR will now be open for branching as well as all of Metro Cebu and Metro Davao.
Morever, branches of microfinance-oriented banks, microfinance-oriented branches of regular banks and branches that will cater primarily to the credit needs of duly-registered Barangay Micro Business Enterprises (BMBEs) may be established anywhere, even in the still closed areas, subject to compliance with a minimum capital requirement of P 325 million in the case of thrift banks and rural banks.
This special feature will allow large microfinance-oriented rural banks and thrift banks with head offices outside NCR to establish beachheads in the NCR. The pro-microfinance bias of the new regulations reflects the BSP’s desire to encourage the efficient delivery of microfinance to the basic or disadvantaged sectors for their microenterprises and small businesses and expand banking services to SMEs nationwide in a bid to increase the income levels and living standards of every Filipino.
Studies show that despite the proliferation of alternative touch points like phone-banking, internet banking and text banking, and distribution channels such as banking kiosks, convenience banking centers, express banking centers, hubs and spokes, the establishment of full-service branches is still the most effective way of reaching out to customers. Providing greater access to formal banking services will encourage residents to join the economic mainstream and stimulate the local economy by enhancing access to credit by local entrepreneurs and encouraging savings and investments.
However, the more relaxed branching guidelines do not provide a carte blanche for banks to expand at will. In general, only financially strong and well-managed banks, microfinance-oriented or not, are allowed to put up additional branches. As such, there are regulatory concerns that must be complied with such as compliance with the minimum capital requirements, risk-based capital adequacy ratio of not lower than 12%, CAMELS composite rating of at least “3” with Management score also of at least “3”, appropriate risk management system in place and no major supervisory concerns on safety and soundness.
Moreover, in the evaluation of the branch application, due consideration shall be given to ensure that banks recycle to the extent possible mobilized savings to meet the local community’s needs.
Several safeguards were also included to regulate excessive competition that could unduly weaken the banking system during the transition phase towards a fully liberalized environment. The proposed branch should be at least 200 meters away from an existing banking office but the distance requirement shall not apply in shopping malls or commercial center complexes, including special export processing zones, public markets, fish ports, livestock/agricultural trading centers, BIR collection offices and industrial/technological parks. A limit of two (2) banking offices shall be imposed in 4th to 6th class municipalities.
Banks proposing to establish branches shall be assessed, per application, a minimum branch processing fee of P 5,000 for microfinance-oriented banks and branches, P= 25,000 for rural banks and local cooperative banks, P 100,000 for non-affiliated thrift banks and national cooperative banks, and a maximum amount of P 200,000 for universal banks, commercial banks and non-affiliated thrift banks.
Additionally, the BSP likewise liberalized offsite solicitation and collection of deposits provided that the minimum capital requirement is met, there are no major supervisory concerns affecting safety and soundness of the bank, and the area of operations is confined to within one (1) hour normal travel time from the bank’s head office or branch, except in remote areas where more than the allotted time may be allowed. It is understood, however, that prescribed minimum internal control safeguards are in place.
“The phased liberalization of branching policy after more than six (6) years of moratorium , reflects the Monetary Board’s desire to see more competition in the banking system that should lead to lower cost of banking services, greater customer access, and improved quality of services. However, some limitations have been retained to regulate excessive competition that could also hurt the banking industry while it is still on the mend as well as to promote more even distribution of banking services to the countryside. We expect to review the policy regularly in the future toward further liberalization as circumstances may warrant,“ BSP Governor Amando M. Tetangco, Jr. said.